Inflation to Direct the GBP as the Markets Tip Toe to Tomorrow’s FOMC

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UK inflation figures to direct the Pound this morning as the markets begin to look ahead to the ECB, BoE and FED monetary policy decision this week, with central bank sentiment towards policy for next year key for the majors. · FX Empire

Bob Mason

Updated Mon, Dec 11, 2017, 10:34 PM

Earlier in the Day:

Key stats through the Asian session this morning were on the lighter side, with stats limited to house price index figures for the 3^rd quarter and November’s business confidence numbers out of Australia and Japan’s tertiary business activity index numbers for November.

For the Aussie Dollar, the data was on the weaker front. House prices fell by 0.2% in the 3^rd quarter. This was worse than a forecasted 0.5% increase, following the 2^nd quarter’s 1.9% rise. Business confidence also eased in November from +8 points to +6 points, with business confidence continuing to trend lower since the summer. While business confidence took a hit, the decline in the business conditions index was less concerning, with the 9 point decline to +12 points leaving the index well above the long-run average of +5 points.

The Aussie Dollar slipped from $0.75265 to $0.75200 upon release of the data, before moving back into positive territory at the time of writing, up 0.12% to $0.7535 ahead of the European open.

For the Yen, it was a pretty flat start to the day, as the markets begin to shift focus towards tomorrow’s FOMC monetary policy decision, which is followed by the BoE and ECB monetary policy decisions on Thursday.

Japan’s tertiary business activity index came in ahead of forecasts, rising by 0.3% in November reversing October’s 0.2% decline.

The Yen was up 0.09% at ¥113.46 against the Dollar, largely unaffected by this morning’s data, with the Yen finding support off the back of the fall in the Asian equity markets through the session.

In the equity markets, it was a risk off session, with volumes on the lighter side as investors look towards the release of tomorrow’s FOMC economic projections for clues on how aggressively the FED will be looking to lift rates through next year.

The Nikkei, the Hang Seng and CSI300 were in the red at the time of writing, with the Nikkei and the Hang Seng having coughed up gains from earlier in the session, whilst the CSI300 spent the morning in the red following Monday’s 1.65% gain that came off the back of news that Chinese regulators will consider the effects of the latest asset management rules on both the banks and the markets before any of the rules are finalized.

The ASX200 bucked the trend to close out the day with a 0.25% gain, with bank and mining stocks on the rise through the session.

The Day Ahead:

Economic data out of the Eurozone this morning includes French nonfarm payrolls for the 3^rd quarter, together with December ZEW economic sentiment figures out of Germany and the Eurozone.

The numbers are forecasted to be on the softer side, though any better than forecasted figures will be a boost for the EUR ahead of Thursday’s ECB interest rate decision and press conference.

Of particular interest will be whether Chancellor Merkel’s failure to form a coalition government has had any impact on sentiment towards the economy in both Germany and the Eurozone. Recent economic indicators suggest that it’s been business as usual, but with September’s election now some time ago, some concern may begin to get reflected in the numbers.

At the time of writing, the EUR was up 0.05% at $1.1775, with direction through the day hinged on today’s data and sentiment towards this week’s central bank monetary policy decisions and their respective outlooks on policy for next year.

For the Pound, November inflation figures will be one of the key drivers through the day. Following Monday’s decline off the back of less optimism over Brexit talks, there could be another hit this morning should the inflation figures come in on the softer side. The numbers will certainly have an influence on Thursday’s BoE forward guidance and whether more is required to peg back inflationary pressures. Softer numbers will give the BoE more breathing room and weigh heavily on the Pound on the day. Brexit will continue to have the greatest influence however, with few in the markets expecting the BoE to deliver a hawkish signal this week.

The Pound was up just 0.01% at $1.3343 at the time of writing, with today’s stats and any noise from Brussels and the British government to drive the Pound through the day.

Across the Pond, it’s a relative quiet day on the data front, with stats limited to November producer price index numbers out of the U.S. While we will expect the Dollar to respond to the figures, focus will remain on tomorrow’s FOMC interest rate decision, economic projections and press conference, with a rate hike now largely baked into the Dollar.

Noise from Capitol Hill will also need to be considered through the day, with plenty going on for the markets to consider including talk on tax reforms, NAFTA and the ongoing investigations into the U.S President’s election campaign.

At the time of writing, the Dollar Spot Index was up 0.06% at 93.919, with any Dollar upside from tax reforms in the hands of the FED this week.

This article was originally posted on FX Empire